Buyers in the property market have been feeling the effects of the Banking Royal Commission well before the final report was released last week.

Greater scrutiny of borrowers’ spending and stricter serviceability and income tests have resulted in in many buyers not being able to borrow as much as they thought, thereby reducing their budgets.  

Loans are also taking longer to approve, often longer than the typical campaign timeframe of four weeks, which has meant many buyers have not been able to bid at auction for the homes they want.

The tightened credit environment has no doubt sped up the cooling of both Sydney and Melbourne and has led to median price falls in other markets as well. Latest CoreLogic figures show weaker conditions across most capital cities and a ‘loss of steam’ in other areas where values are rising.

So, in terms of the Royal Commission’s final report, the big question for buyers was whether the report would make any recommendations that would make it easier or harder to get a home loan.  

The report basically says current rules for loan assessments by the banks are adequate, they just haven’t been followed or enforced well enough in recent years. The report noted that the banks have already begun to address this and have made substantial changes to meet their obligations.

How this translates to today’s buyers is that credit will remain harder to get. The bar has been shifted and we need to get used to it. The era of easy credit is over and this is good because it will help ensure the long-term stability of both our property market and the economy as a whole.  

I see the role of mortgage brokers becoming even more important in helping customers navigate what will now be a longer and more detailed process.

Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans says customers are feeling frustrated and brokers can eliminate much of their confusion and stress. 

“Borrowers need an experienced broker with vast product knowledge to help them through the process. Customers are coming to us saying they feel overwhelmed and need help.

“Brokers should do more than home loan applications. I’d be suggesting for a broker to work with clients well before the application stage to help them budget for their deposit and understand what type of property they can afford.  

The key benefits of brokers today include choosing the right lender whether it be a bank or non-bank, with consideration to how each one has altered their assessment criteria, to get loans approved faster.  

“There are differences in the way lenders look at expenses, especially discretionary expenses; and there are also differences in how they assess income. Understanding these differences helps ensure customers maximise their chances of getting approval,” Alan says.

This is important because when a loan is refused, not only is the buyer’s purchase delayed while they go through the application process a second time, the refusal is recorded on their credit history.

Brokers can also educate clients on new lenders and the opportunities they present.

“Brokers can help customers understand how online-only lenders, smaller banks and non-banks work.  A huge number of small lenders have entered the marketplace over the past few years but many customers don’t know about them.

“Right now, many are offering significantly better rates than the big banks to gain market share, so we’re taking a lot of clients down this non-traditional path to secure a much better rate for them,” Alan concludes.

I have always advocated making the process of getting a loan easier for clients.  That’s why McGrath set up Oxygen in the first place.  But good quality regulation is certainly required to make sure all broking customers receive excellent, open, honest and transparent advice.

Over my 35 years in real estate, I have seen the market adapt to many changes imposed by government or regulators.  Each change causes disruption, the market figures out a way to adapt and life goes on. 

This might already be happening, as many of our agents on the ground in Sydney are telling us that more buyers are attending opens compared to last year.

We always see renewed interest early in a new year but this year it seems to be higher than usual. This will be partly due to prices being down 10-15%, which also means buyers don’t need to borrow as much. 

I'd say we're pretty close to the bottom of the cycle in Sydney, so it’s important for buyers to talk to their broker as soon as possible to find out what they need to do to ready themselves for a loan application.

Once that’s done and you’re out in the marketplace this Autumn, if you find a home you love and the price is right, I think you should jump on it.